Flat reinsurance rates expected in 2025, says Fitch

Reinsurance market rates are expected to be mostly flat in 2025 and terms and conditions to broadly hold steady, according to Fitch Ratings, due to the market having reached an equilibrium, with increased capital supply from accumulated earnings meeting higher demand for reinsurance protection from cedents.

Fitch said margins will peak in 2024, although reinsurers should continue to produce favourable returns in 2025 comfortably above the cost of capital, as underwriting discipline is maintained. It added that the disciplined environment is supported by limited new capacity entering the market, deteriorating US casualty loss-cost trends from social inflation and heightened catastrophe and climate change risk.

The 19 non-life reinsurers monitored by Fitch Ratings posted solid underwriting profits in 1H24 with an aggregate reinsurance combined ratio of 84.2%. This included moderate losses of 5.9pp from catastrophes. Fitch said underwriting results should remain favourable in 2H24 and 2025 as pricing is generally adequate. Premium growth is likely to continue, although at a reduced pace as the market becomes more competitive, said the ratings agency.

“While overall reserve development should remain favourable in 2025, albeit at a reduced level, there are several pockets of adverse development, particularly in US commercial liability, including general liability and auto. As such, we remain cautious that casualty reserve deficiencies could weaken the capital base of select companies,” Fitch noted.

It went on: “Expected continued rate increases in the underlying primary insurance business should help to support reinsurance rates, especially through proportional treaties. Furthermore, increased investment yields are helping to offset higher claims inflation, as capacity maintains its underwriting discipline.”

Property market prices at the mid-year 2024 reinsurance renewals were flat to down for risk/catastrophe loss-free business and up only slightly for loss-hit business. Fitch said this is a significant moderation from large double-digit (and some triple-digit) increases experienced in 2023. Fitch said it expects property reinsurance market conditions in 2025 to remain supportive of strong returns, even if pricing softens and terms weaken somewhat in the event 2H24 catastrophe losses prove to be more moderate than expected.

Casualty reinsurance rate changes at the mid-year 2024 renewals were in line with those experienced in recent years as prices increased up to 15% for loss-affected and up to 10% for no loss accounts, said the ratings agency, adding that professional and financial lines, including D&O, as well as workers’ compensation, continue to have rate pressure, although accounts with loss emergence secured slight price increases.

“While economic inflation has eased, the push for higher casualty prices in the US reflects social inflation and litigation finance trends with elevated damage awards from nuclear verdicts. This is particularly the case for commercial auto and general liability from the 2015-2019 soft market accident years, but also from growing concerns around the more recent 2021-2023 period. This will help to push casualty rate rises to keep up with higher loss costs,” said Fitch.

It said premium rate increases for specialty lines of business varied, depending on recent loss experience. Fitch said price rises were most pronounced in political risk and political violence and terrorism where available capacity is limited due to higher levels of unrest globally, while in cyber, prices were flat as capacity remains ample, even with increased ransomware activity.